The power base of Syria’s
Bashar Assad may be starting to erode as more members of his armed forces
start rebelling against the repressive measures he expects them to implement,
and as the elite of his ruling Baath party is getting concerned about
the growing civilian casualty list & the effect this is having on
the country’s image abroad.
The best thing that can
be said about bin Laden’s elimination is that it will make it more
difficult for Republicans to claim President Obama is an unfit, indecisive,
fussy-footing Commander-in-Chief; for it involved immense risks to his
political future (as Jimmy Carter can attest to). As to claims his death
makes the world a safer place, this may be more “spin” than reality,
regardless what has since supposedly come to light. For years he has
been more of a symbolic figure for Americans, an inspirational one for
Muslim extremists & an embarrassment for the Pentagon rather than
an active ‘enemy combatant’ (the house he lived in apparently had
no landline phone hookup, he wouldn’t have dared to use a cell phone
& according to one of his five wives he hadn’t left his
room in five years, all of which would have made it difficult for him
to be a pro-active warrior in the War on Infidels. In fact, his death
may actually boost the risk of (retaliatory) activities by terrorist
sympathizers (not followers). And the US’ furtive & hasty disposal
of his remains undermined its credibility & is already giving rise
to a host of conspiracy theories.
In February & March
Mexico’s central bank bought 100 tonnes (3.125MM ounces) of gold (close
to US$5BN-worth). Right now gold prices are soft, due to optimism engendered
by the bin Laden’s ‘take-out’ & rumours of investor profit
taking in general, & hedge fund selling in particular. But its price
is still well above its 150-day moving average that it has unsuccessfully
tested 7x in the past two years. And more central bank buying would
not only overwhelm investor selling but also would likely prompt them
to rejoin the market’s buy-side. As to silver prices, they have been
set back by huge futures sales by the world’s richest man, Sr. Carlos
Slim of Mexico (who beat out both Bill Gates & Warren Buffett for
that honour in the latest Forbes’ listing & who was recently fined
US$1BN by Mexico’s anti-trust regulator for monopolistic practices
by his cell phone company) to hedge the future output of his Minera
Frisco SAB gold-silver mine, & by the Chicago Mercantile Exchange
hiking margin requirements for its silver futures contracts 4x in less
than two weeks, from US$8,700 to US$16,000 per 5,000 ounce contract
(which makes one wonder why it would be so aggressive unless a major
investor was hugely offside & needed a lower price to avoid imploding).
India’s central bank
raised its key interest rate by a higher-than-expected 50 bps to 7.25%
after its March wholesale price inflation rate came in at 8.98% (vs.
an expected 8.00% & an actual 8.3% in February). Elsewhere the YoY
inflation rate between February & March rose from 2.4% to 2.7% in
the US, from 2.2% to 3.3% in Canada, from 2.4% to 2.7% in the Euro area
(which was particularly significant since it was due to higher prices
for goods other than food & energy), & from 4.9% to 5.4% in
China. What do the inflation deniers think they know that the rest of
us doesn’t? (while they no doubt will now point to the current weakness
in oil- & other commodity prices to support their view, consumers
will continue to feel the effect of the ‘locking in’ of earlier
price increases into everything they buy).
Alberta just experienced
its biggest oil spill (28,000 bbls) in 36 years from a (non-oilsands)
pipeline in Northern Alberta. While the apologists point to the highly
sophisticated inspection systems now in place to verify pipeline integrity
as evidence that everything is just hunky-dory, the incontrovertible
fact are that the pipe is 44 years old (while much pipe of that era
was designed for a 30-year useful life) & that all human-made goods
have a finite life. Pipelines operate under high pressure & often
carry corrosive products. This pipeline had experienced another break
a number of years ago, after which the regulator had ordered the operator
to cut the pressure in it, thereby questioning its integrity & reducing
its daily throughput capacity by 15%. And a spill is seriously problematic
when it involves 3½ hours of throughput & it takes the operator
so to close the tap & reduce pressure in the line.
The CEO of Walmart recently
observed there was evidence of more & more modest income
US consumers really living paycheque to paycheque in the growing
trend for its sales to be strong early each month & to tail off
as the month wears on - it used to be that the term
“three day millionaires’ only applied to
public welfare cases.
There were two interesting
aspects to the Palestinian unity agreement : it was signed one day earlier
than expected & it was signed not just by Fatah & Hamas, but
also by ten or so, often more radical, splinter groups. Meanwhile the
Netanyahu government gave formal notice of its displeasure by
(unlawfully?) suspending the transfer to the Palestinian
Authority of tax revenues it had collected, & is continuing to collect,
on its behalf, prompting the Palestinian Prime Minister to comment that
if it thought this would halt the unity process it had another thing
coming.
With all the kerfuffle
about the US debt ceiling, it may be worth noting that it stood at US$1TR
as recently as 1982 (vs. today’s US$14.6TR) & has been raised
78 times since 1962.
Brazil has long been
the world leader in the use of ethanol in motor fuel, has been mixing
it into gasoline since 1976 & now has a mandatory ratio for motor
fuels of 25% ethanol & 75% gasoline. This was driven in part by
a desire towards fuel self-sufficiency & in part by the ready availability
of cheap sugar (that is an 8x better feedstock for producing ethanol
than corn from a energy efficiency point of view). But recently the
price of sugar skyrocketed to three decade highs (although it is now
expected to ease off following record sugar production in Thailand);
so it found it advantageous to sell its sugar & import (highly subsidized)
corn-based ethanol from the US, thereby adding to the pressure on the
US budget & on the global food grain situation.
GLEANINGS VERSION
II
No. 408 - May 5th,
2011
INFLATION A
‘TEMPORARY BULGE’ (WSJ, Jon Hilsenrath)
- According to the new
President of the San Francisco Fed on May 4th, “We are
seeing a temporary bulge in inflation before we return to an underlying
level of about 1.25% to 1.50 percent annually”. That day another Bernanke
loyalist, Boston Fed President Eric Rosengren, said surging food &
energy prices are due to supply shocks & political upheaval; so
“If supply shocks tend to have a transitory impact on headline inflation,
and do not pass through to any meaningful way into core inflation, then
monetary policy need not respond to the price increases caused by the
supply shock ... (and) can remain in place and continue to support
economic growth.” He also opined that, when the time came to tighten
the current easy-money policy, this could be done in a very gradual
way.
Seldom
in its nearly 100-year history has more nonsense emanated from over-educated
Fed staffers who have forgotten their
Grade Two arithmetic, namely that, to
quote Raoul Castro, “two plus two is four. Never five, much less six
or seven, as we have sometimes pretended”. They base their
case of plentiful excess capacity in terms of
high unemployment, & obviously are too young to remember, or are
wilfully ignoring, that there was “Stagflation”.
KILLING A SYMPTOM
(Lebanon Daily Star, Editorial)
- The US should use the death
of Osama bin Laden to address the root causes of the anti-US sentiments
that have spawned many would-be Osamas & enabled his twisted ideology
to find so much resonance. For it has long fostered antagonism among
many who don’t share bin Laden’s warped vision by pursuing two policies
hostile to its own security. Its favouritism of an Israel that stifles
the Palestinians’ legitimate statehood aspirations - a cause it claims
to endorse - caused it overlook Israel’s blatant oppression of, &
its violations of international law against, them. And, while advocating
freedom & democracy as the greatest of human virtues, it has denied
those fundamental rights to the region’s people for the sake of
its unquenchable thirst for oil. And it wasn’t just violent extremists
like bin Laden who mined these follies to further their cause, but also
many local tyrants who claimed their state-sponsored terror was all
that stood in the way of Islamist takeovers. The Arab Spring is providing
Washington with an opportunity to start walking the walk & champion
the call of the people for freedom, and help the Arabs & Palestinians
to fulfill their aspirations, thereby hollowing out the basis for terrorism.
The needed 9.0 foreign
earthquake is not feasible in the current US political environment.
MALAYSIAN MINISTER
DROPS BOMBSHELL (Business Insider, Joe Wiesenthal)
- On April 28th Lim
Siang Chai, Malaysia’s Deputy Minister of Finance, told the China
Daily China should help create a single Asian currency since “A unified
currency in Asia ... would help reduce the risk of exchange rate volatility
(due to ‘hot money’ flows) and help the region’s trade
... Without China’s leadership, its hard for Asia to achieve that
goal”
China, Japan &
South Korea since agreed to start using their currencies in trade settlements,
a big step forward towards achieving what they agreed on a few months
ago, the creation of a trilateral free trade agreement (an event foreshadowed
in a January 2011 Asian Development Bank Institute paper entitled
A de-facto Asia-currency block in East Asia : It has been there but
we didn’t look for it). Several years ago Iran started demanding
settlement of oil payments in non-US$ currencies, a few months ago Russia
& China agreed to trade settlement in their own currencies &
now this; each such move reduces the global need for US$ working capital
balances & speeds up the erosion of its pivotal role in the international
monetary system).
WORLD TRADE TALKS
‘ON BRINK OF FAILURE’ (AF-P)
- WTO Chief Pascal Lamy warned
on April 29th that, despite calls to conclude it this year,
the Doha Round is set to fail while “under the right conditions a
deal would be doable.”
Trying to blow life
into it in the present environment is like flogging a dead horse.
U.S. AUTO SALES
JUMP IN APRIL (AP, Dee-Ann Durbin & tom Krisher)
- They were up 18% YoY to 1.16MM
units & thus for the 3rd month in a row hit a 13MM annual
rate. But with gas up 36.5% YoY buyers want smaller, more fuel-efficient
cars.
And buyers of bigger
vehicles too are opting for models with smaller engines. This shift
towards smaller cars & engines is known, rather tellingly, in the
industry as “mix degradation”.
WALL STREET RALLIES
ON U.S. JOBS (FT, Michael Stothard)
- Despite the unemployment rate
rising from 8.8% to 9.0% as more people had started looking for work,
market sentiment was pulled from the doldrums by focusing on the part
of the same Labor Department report that, even after a 22,000 loss of
public sector jobs, 244,000 new jobs had been created in April, far
more than the 186,000 expected.
This is a good news,
bad news story. The good news is that the private sector may be starting
to pick up the slack, especially the SME sector, given an apparently
a growing willingness by the banks to start lending money rather than
just sitting on it, and the bad news that the loss in public sector
employment is likely only a harbinger of things to come & that the
banks may be more willing to lend since they
are losing faith in their primary alternate outlet for funds, government
securities. But stock market sentiment is critical since it has been
the be-all-and-end-all of the two QE programs & since a swooning
market might prompt Joe & Jill US Consumer
take their feet off the consumption spending pedal.
US MANUFACTURING
OUTPUT EXPANDS MORE THAN EXPECTED (BBCNews)
- Despite the ISM’s Index
of Manufacturing Sector Activity going to 60.4 in April from 61.2 in
March, it grew more than expected as the weak dollar makes exports cheaper;
so one expert said “The economy is not falling apart, despite the
spike in oil prices. Firms are hiring, adding to inventories, seeing
demand rising and exporting, not signs of malaise.”
This came from Joel
Naroff of Holland, Pa.-based Naroff Economic Advisers,
until two years ago Chief Economist at Commerce Bank/TD Bank.
Nevertheless, the ISM’s Index of Input Prices rose from 85.0 to 85.5,
an almost three year high, & its April Index of US Business Activity
dropped sharply to 52.8 from 57.3 in March & February’s five-year
high of 59.7.
SALES GROWTH IS
THE BIG SURPRISE ON WALL STREET (AP, David K. Randall)
- Most companies that have reported
earnings so far beat the analysts’ sales predictions, many by 10%
or more as, despite high gas prices and events in the Middle East &
Japan, consumers spent more on non-necessities as well as necessities.
But the payroll tax
break worth US$695 in additional take-home pay for 160MM workers
is for one year only & more price hikes are in the pipeline. And
while consumer spending was up 0.6% MoM, higher prices accounted for
two-thirds thereof; so volume was up only 0.2%.
BERNANKE CALLS
FOR MORE LENDING TO LOWER-INCOME AREAS (msnbc.com)
- At a conference on community
development in Arlington, Va. on April 29th
he said people & small businesses in low income neighbourhoods had
been hurt most by the worst recession since the 30's; so he called for
more lending in troubled communities since this would stimulate economic
activity that would help generate more local taxes.
Meanwhile on his watch
the Fed (& the Treasury) went all-out to save the hides of Wall
Street banks while ignoring the Main Street banks that would have been
the conduit for such lending. But social engineering isn’t part of
the Fed’s mandate & banks are not welfare agencies (in fact, the
government-prompted encouragement of their indulging people’s aspirations
to fulfill the American dream of home ownership contributed big time
to the unsustainable housing boom.
GROUP OF 6 SENATORS
HONES PLAN TO CUT DEFICITS (AP, Andrew Taylor)
- Most Republicans & some
Democrats in Congress say they won’t support raising the debt ceiling
without appropriate fiscal action. The plan being hatched by the
bipartisan ‘Gang of Six’ Senators would cut borrowing by US$4+TR
by having Republicans accept higher taxes & Democrats cuts to benefit
programs. Their plan is based on last November’s report of the
National Commission on Fiscal Responsibility and Reform & on
the political reality that getting anything passed into law will only
happen if both Democrats & Republicans are equally uncomfortable
at having to accept distasteful things since leaving their core beliefs
off the table won’t make enough of a dent in deficits that otherwise
could average US$1TR or more a year
over the next decade. It is the only bipartisan effort in a town full
of plans to tackle the deficit by people who couldn’t get politically
poisonous decisions adopted (the Commission’s plan envisaged freezing
the Pentagon’s budget & cutting spending at most domestic agencies,
gradually raising the retirement age for SS benefits to 69 & curbing
future COL increases, cutting income taxes & paying for that by
eliminating popular tax breaks such as mortgage interest deductability,
and eventually making the current tax-exempt employer-paid health insurance
premiums fully taxable.
- Following are three seemingly
relevant quotations :
- “While the conventional
wisdom is ... we can punt ... this until after the next ...election
... there’s a growing consensus ... we may not have that long.”
- Sen. Mark Warner (D.-Va.);
- “A Republican plan will
not pass. A Democratic plan will not pass ... It is going to require
locking arms and jumping off the building together.” - Sen. Saxby
Chambliss (R.- Ga.); and
- “Pray for the Gang
of Six” - the former two-term Republican Senator from Wyoming, Alan
Simpson, who co-chaired the Commission.
House Speaker John
Boehner (R.-Ohio) says he would prefer to have the debt ceiling raised
sooner rather than later (& is planning to tour Wall Street next
week to spread the word his heart is in the right place) &
there are growing rumours that others in Washington share this view.
But hurdles remain. The bipartisan effort solely
involves Senators which is seldom conducive to a ready acceptance
of its ideas by the House. Even if the Senate were to pass a bill raising
the debt ceiling, it would take time, and
could engender much controversy & animosity, before it was
‘reconciled’ with whatever the House might come up with. John Boehner
has anything but firm control over his own troops (& not just the
dogma-bound Tea Party types), never mind the House Democrats,
& the same goes for Minority House Leader Nancy Pelosi). Many lawmakers
don’t seem to appreciate the extent to which they are playing with
fire and/or reflect grassroots sentiments among voters who are wholly
oblivious to, or don’t care, about the debt ceiling issue. And longer
term, the US$4TR would be spread over ten years, which means that the
national debt could be expected to continue to grow faster than GDP,
& the debt/GDP ratio to rise, for some time to come (while the IMF
expects that of many other heavily indebted countries, like Britain,
to decline in the years ahead), to the discomfort of foreign buyers
& holders of UST securities. And while Sen. Saxby’s observation
is wonderfully graphic, it is suggestive of
a “hard landing” that wouldn’t sit well with voters.
GEITHNER PRAISES
CHINESE ECONOMY AHEAD OF TALKS (CD, Chen Weihua)
- On April 26th
in New York he told the Council on Foreign Relations China is still
in its early stages of transition to a modern economy, described its
handling of the financial crisis as “well-designed ... they did all
the necessary things”, acknowledged its efforts to move to a less
import-dependent economy & said the US would never embrace a strategy
of weakening its currency to gain an economic advantage over its trading
partners. He is confident the US Congress will raise the debt
ceiling (this after reducing the pressure on lawmakers to do so sooner
rather than later by telling them in writing that he had found enough
scope for financial legerdemain to defer, absent a mid-May increase
in the debt ceiling, the ’drop dead’ for a US default by almost
a month to early August?),
believes the US has a very good chance of emerging from the crisis with
growth potential as strong as before the crisis (???) & says
the US is way ahead of other countries that are caught in this mess
(such as Iceland, Greece, Ireland & Portugal?), with its
biggest challenge now being to build a political consensus under
a reasonable balance of fiscal sustainability. This came a few days
before he & Hilary Clinton will meet in Washington on May 9th
& 10th with China’s Vice Premier Wanj Qishan &
State Councillor Dai Bingguo for the annual US-China Strategic and Economic
Dialogue to discuss economic & trade issues. And while China’s
currency is always a topic of conversation, this year the US
dollar, the low US interest rates, inflation concerns & the US budget
deficit will likely also be on the agenda.
This sounds remarkably
much like ‘sucking up’ to one’s banker. As to Geithner’s claim
the US would never “embrace a strategy of weakening its currency to
gain an economic advantage over its trading partners”, the Chinese
reaction may well be the Mandarin equivalent of
“tell that to the Marines”; for they are no doubt aware of the US
policy practice known as “Benign Neglect”.
DIFFERENCES EMERGE
OVER PALESTINIAN PACT (NYT, Ethan Bronner)
- Just one day after announcing
plans for a unity government, Fatah & Hamas interpreted it
differently. Mahmoud Abbas said he will remain in charge of the peace
effort, that it’s only functions will be to rebuild Gaza & prepare
for elections within a year, and that no activists from either side
will serve in it. And his aides said the rapprochement was due to Hamas
being weakened by the turmoil in Syria & a new regime in Egypt that,
while friendlier than Mubarrak’s, is unlikely to go down an Islamist
path. Meanwhile Hamas portrayed Abbas as frustrated by the failed peace
effort & heading in a direction more like its own, with one Hamas
adviser saying the Palestinians had been “really disappointed” with
Obama’s failure to act on with what had seemed a new American vision
for the region.
There is some truth
in both. But the real centripetal forces won’t surface for, say, six
months, i.e. until one side or the other gets the feeling the election
may not go its way.
PALESTINIAN HOPE
AND CAUTION OVER HAMAS-FATAH DEAL
(BBCNews, Jon Donnison)
- Palestinians love Spanish
football. So on April 27th, after watching Barcelona beat
Real Madrid 2-0 on TV, they celebrated while on another channel another
rivalry was settled when Hamas & Fatah leaders announced in Cairo
that, after four years of division, they would sign a unity deal. Most
Palestinians are hopeful but cautious : they want to see a deal actually
signed & then will wait & see if it will work; for they know
the split between the two has been deep, bitter & violent,
that Hamas will continue running Gaza & Fatah the West Bank, and
that Israel opposes the deal (& will do
anything to derail it).
- Despite Netanyahu’s public
warning to Mahmoud Abbas to choose between peace with Israel or Hamas,
the latter opted for reconciliation since the peace talks had been going
nowhere. But the unrest elsewhere in the Middle East, that had prompted
mass pro-unity demonstrations in both Gaza & the West Bank, had
also been a factor. While the EU had been more positive about reconciliation
than the US, it remains to be seen how it will react if Hamas gets a
say in what happens to the money it gives Fatah. Meanwhile Egypt’s
interim regime is proud of the role it has played & Abbas expects
the deal to strengthen his push for international recognition of a Palestinian
state based on the 1967 borders, while Hamas will come under fire from
the militants in its midst, who have been firing rockets into
Israel, for having given away too much & become too moderate.
It remains to be seen
if they will really be able to bury the hatchet for the common good.
One potentially divisive issue that has
already arisen is Hamas’ demand that
the unity government should be headed by
someone from Gaza.
GAZA-EGYPT BORDER
CROSSING TO OPEN PERMANENTLY (BBCNews)
- Israel, with help from Mubarrak,
has blockaded Gaza ever since Hamas took control in 2007, ‘to prevent
the import of weapons there’, a move viewed by many as ‘collective
punishment’ & one the Red Cross in 2010 called ‘a clear violation
of international humanitarian law’. But on April 29th Egypt’s
interim Foreign Minister announced the Rafah border crossing will be
permanently opened, alarming Israel & prompting one observer to
call it the greatest shift in Egypt’s foreign policy in 30 years.
The interim government also says it wants to improve relations with
Iran & with the countries that share its dependence on the water
of the Nile, but says that, despite many Egyptians favouring ending
the peace treaty with Israel, it will honour existing international
agreements.
This kills the Israeli
blockade & presumably also the Mubarrak regime’s construction
of a subterranean steel barrier to block traffic through the myriad
of tunnels by which goods, incl. weapons & livestock, had continued
to flow into Gaza.
AHMADINEJAD RETURNS
TO WORK AFTER ‘BOYCOTT’ (BBCNews)
- On April 17th
he fired Intelligence Minister Heidar Moslehi only to have the Supreme
Leader promptly re-instate him. So he stayed away from his office, shunned
all official duties, missed two Cabinet meetings & cancelled a visit
to the holy city of Qom. But following the despatch of a letter signed
by nearly 300 MPs, & a meeting with a group of lawmakers, on April
30th, he was said to have renewed his allegiance to Ayatollah
Khameni & signalled the end of his boycotting his official duties
by chairing a Cabinet meeting.
All’s
may not be well in the upper echelons of the regime.
If so, this is due in part to the growing social unrest prompted by
sharply higher food- & fuel prices ( due in turn in part to a
reduction in the subsidies thereon),
in part to the same forces as are at work elsewhere in the Middle East
countries, an un/underemployed young population aspiring to a better
life than they see their parents having had, and
in part to squabbling within the ruling elite over the spoils of power.